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MBA Renewables, Investment and Financing Module Group Work, Investor Presentation Group 4 Carsten Jung Riikka Lauhkonen-Seitz Mario Maras Ovaise Mohammed Murtuza Adriana Stefanac

17 September 2013

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Agenda  

1. Introduction 2. Project Description and Status 3. Technology 4. Cost and Revenue Assumptions 5. Proposed Financing Structure and Returns 6. Risk Assessment 7. Project Attractiveness

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Introduction  1 Introduction

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Introduction Country and Sector Context

Republic of Kenya Vision 2030 key driver ENERGY

•  Fast growing electricity demand due to economic growth •  Current capacity of 1,636 MW insufficient to meet demand •  Diversification of energy mix necessary as hydro power is vulnerable to climate change and fossil fuels have to be imported •  High electricity costs

•  Up to 23,000 MW required until 2031

•  Government Strategy – Wind as one of the priority resources to “promote equitable access to quality energy services at least cost while protecting the environment”

•  Potential of renewable energy in creating income and employment, contributing to low-cost, reliable energy supply and decreasing dependence on imported and expensive fossil fuels

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Introduction  2 Project Description and Status

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Project Description General Project Information

Project name Kipeto Wind Energy Project

Location Kipeto, Kenya

Type of turbine GE 1.6-100

Turbine capacity 1.62 MW

Number of turbines 63

Total installed capacity 102.06 MW

Net Output 476,613 MWh/year

Net capacity factor 53%

Feed-in-Tariff 0.12 USD/kWh

Commercial operation date August 2014

Expected operational project lifetime 20 years

CO2 emission reductions ~295,000tCO2/year

Total Investment 297,870,744 USD Project area (70km2, 1850m – 2035m AMSL), position of wind turbines, map of Kenya

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Project Status

Project Parties Agreements Project company Kipeto Energy Ltd Registered as SPV Project owner(s) •  Craftskills Wind Energy International Ltd

•  General Electric Joint Development Agreement signed

Turbine supplier General Electric Turbine supply contract signed EPC Contractor General Electric EPC contract signed Technical Service Provider General Electric 20 year O&M contract signed

Landowner Local community members 20 year land lease agreement Long-term off-taker KPLC Kenya Power and Lighting Company 20 year PPA (take-or-pay) signed Grid operator KPLC Kenya Power and Lighting Company Grid connection agreement in place Relevant Authorities •  Ministry of Energy and Petroleum

•  Energy Regulatory Commission •  Kenya Civil Aviation Authority •  Kajiado County •  UNFCCC •  National Environment Management Authority (NEMA)

•  FiT approval obtained •  Generation license obtained •  Operating permit obtained •  Construction permit obtained •  CDM registered •  EIA license obtained

Bank Qatar National Bank Loan agreement signed

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Introduction  3 Technology

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Technology Key technology details of turbine, other facilities at project site

Other facilities §  34 km underground cable

trench system §  Substation incl. step up

transformers (remote control via SCADA)

§  20 km 220kV transmission line

§  Main and back-up metering system (remote access via GSM)

§  324 m2 x 2 m concrete bases §  Substation control building §  32 km access roads

GE 1.6-100 Manufacturer GE Energy

Rotor diameter 100 m

Area swept 7,854 m2

Number of blades 3

Length of blades 48.7 m

Hub height 80 m

Cut-in wind speed 3.5 m/s

Cut-off wind speed 25 m/s

Rotor speed range 9.75 to 16.18 rpm

Nominal output 1,620 kW

Operational data 50 Hz

Lifetime 20 years

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Technical Parameter Turbine technology GE Energy 1.6-100 GE Energy 1.6-100 Number of turbines 63 63 Turbine capacity 1.62 MW 1.62 Nominal plant capacity 102.06 MW 102.06 MW Nominal electricity production 894,046 MWh/year 894,046 MWh/year

Electricity generation and Capacity Factor Probability P50 P90 Gross capacity factor 61% 51% Gross electricity production 545,368MWh/year 452,655 MWh/year Topographic factor 101.90% 101.90% Array efficiency 96.00% 96.00% Electrical efficiency 96.00% 96.00% Availability 96.10% 96.10% Substation availability 99.00% 99.00% Icing and blade degradation 99.00% 99.00% Power curve 99.00% 99.00% Hysteresis 99.80% 99.80% Grid curtailment 100.00% 100.00% Net electricity production 476,613MWh/year 395,589MWh/year Net capacity factor 53% 44%

Technology Electricity Generation and Capacity Factor

Project area

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Introduction  4 Cost and Revenue Assumptions

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Cost and Revenue Assumptions Most important cost and revenue drivers

Tariff - FiT (2010) 120 USD / MWh Annual escalation: 12% of the tariff

PPA duration 20 years

Annual escalation rate 2% US Fed inflation target

Annual generation 476.613 MWh Based on P50 Expected carbon credit revenue 5.28 USD/CER CDM + Gold Standard

Total investment cost 297,870,744 USD

Investment / MW 2,918,584 USD

O&M costs (first year) 6,599,885 USD Annually escalated

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Cost and Revenue Assumptions CAPEX and OPEX

86%  

0%  3%  

2%   2%  2%  

5%  

CAPEX  

Total  EPC  Cost  

Project  development,  management  and  legal  cost  

IDC  

Financing  fee  

ConBngency    

Working  capital  

Debt  reserve  

12%  

59%  

1%  3%  

12%  

13%  

OPEX  

Land  lease  

Total  annual  service  and  maintenance  

Retrofit  and  decommissioning  reserve  

AdministraBon  

All  risk  insurance  

Community  trust  fund  

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Cost and Revenue Assumptions Profit and losses – Taxes and depreciation

•  100% investment deduction allowance in the first year of operation •  Losses to be carried forward •  30% Corporate tax rate •  20 year depreciation on hard costs, 5 year depreciation on soft costs

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Introduction  5 Proposed Financing Structure and Returns

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Proposed Financing Structure Your opportunity to SHARE(s) Growth

Selling price $ $70,362,678

Selling price $ Exclusive of

CERs $67,020,917

Taschner Green Climate

Investments Equity IRR

> 21.27 %

•  Debt financing assumptions: •  Interest rate: 8% annually •  Term: 13 inclusive of 1 year grace period •  USD based loan

70%  

12%  

18%  

Proposed  Financing  Structure  

Debt  

CraOskills  

Taschner  Green  Climate  Investments  

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Proposed Financing Structure Cash flows

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Proposed Financing Structure Project returns and debt service cover ratio

Project IRR (before tax) 16.36 %

Project IRR (before tax) incl. carbon credits 16.93 %

Project IRR (after tax) 14.37 %

Project IRR (after tax) incl. carbon credits 14.88 %

0.00%  

5.00%  

10.00%  

15.00%  

20.00%  

25.00%  

Equity  IRR  excl.  CDM  

Equity  IRR   P-­‐IRR  before  tax  excl.  CDM  

P-­‐IRR  before  tax  

P-­‐IRR  aOer  tax  excl.  CDM  

P-­‐IRR  aOer  tax  

Internal  rate  of  returns  (IRR)  

IRR  

Average DSCR – P50 1.84

Average DSCR – P90 1.49

• Project IRRs (to the firm)

• Debt Service Cover Ratio (DSCR)

Equity IRR 21.27 %

Equity IRR incl. carbon credit 21.40 %

• Equity returns: Taschner Green Climate Investments

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Proposed Financing Structure Taschner Green Climate Investments returns

• Equity return – Taschner Green Climate Investments

Equity IRR 21.27 %

Equity IRR incl. carbon credit 21.40 %

• Sensitivity analysis – Equity IRR

• Net present value and M – Equity IRR

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Introduction  6 Risk Assessment

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Regulatory risk

Risk level: low  §  Increasing demand à markets secured

§  PPA signed à long-term offtaker secured -  A World Bank credit guarantee (MIGA) issued in case of default of Kenya Power

§  Local politics favorable à government support secured

Risk level: low  §  Supportive local legislation, e.g. Energy Act 2006

§  Feed-in-Tariffs Policy on Wind, Biomass and Small-Hydro Resource Generated Electricity, 2008, 2010, 2012

§  “Kenya Vision 2030”

Market risk

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Political risk Risk level: medium  

§  Kenya WTO member

§  Ease of doing business: Report by World Bank and IFC, Kenya ranked 109 out of 182 countries -  Lack of infrastructure -  Lack of human capacity -  Corruption -  Government inefficiencies -  Security constraints

à Mitigated by involving a well-linked local project development company and international consultancies during the project development phase

Risk level: low  §  Currency fluctuations à not relevant as FiT being paid in USD, similar to loan currency and most O&M costs

§  Inflation in Kenya highly volatile à not very important as revenue being paid in USD § Tariff partially applicable to annual escalation

Exchange rate and inflation risk

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Resource risk Risk level: low-to-medium  §  Wind measured with 3 meteorological masts à always some risk à Experienced project development company Galetech Energy Services consulted for wind measurement and turbine layout (Irish based internationally focused renewable energy consultancy, other reference projects in Africa) – wind measured for 2 years and 20 year historic correlation applied for yield assessment

Risk level: low  §  Application of known, state-of-the-art turbine technology

§  Experienced turbine manufacturer (GE)

§  Turbine type selection based on onsite wind analysis

Technological risk

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Construction & installation risk Risk level: medium  

§  Potential delays due to lack of local know-how and machines à dependency on international companies §  Only one port, distance 600km à transport delays and damage §  Poor infrastructure and slow bureaucratic processes à delays in getting permissions, construction of roads, etc.

à Mitigated by entering into EPC contract with GE à Permits in place as local development company is well linked in the political sphere

Operation & Maintenance risk Risk level: medium  §  No O&M capacity in Kenya - international know-how required à Mitigated by O&M contract with GE à University course being set up to engage lower-cost local labour

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Mitigation of other possible risks Public and local community acceptance  

§  Environmental & Social Impact Assessment study §  Active stakeholder consultation §  Creation of employment opportunities, capacity building §  Income to landowners from land lease contracts §  Local community trust fund to receive a share of revenues

CDM and carbon credits §  Risk that credits not obtained due to inadequate monitoring mitigated by hiring experienced consultant §  Carbon credit price risk à Difficult to mitigate, however experienced company hired to develop carbon trading strategy

Other §  Insurance agreements in place §  Fixed interest rate (swap)

§  Land contracts tied to the project even if ownership changes

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Introduction  7 Project Attractiveness

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Absolute Project Attractiveness – Finance §  Returns: 21.40% with Carbon Credits and 21.27 % without §  Risk: Medium to low §  Project qualified for CDM credits -> Rising prices net benefit to investor §  Rapid increasing demand for energy in Kenya and PPA signed between Kipeto Energy and KPLC §  Local wind energy friendly legislation in place §  Kenya Vision 2030 encouraging energy security and environmentally friendly energy §  Opportunity for an excellent entry point into an untapped market

(Africa)

Project Attractiveness

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Absolute Project Attractiveness – Environment §  CO2 emmission reductions through replacement of fossil fuels §  Reduction of dependence on fossil fuel imports §  Reduction of dependence on hydropower (hydroelectric dams): Due to severe drought seasons electricity blackouts are common

Project Attractiveness

Absolute Project Attractiveness – Social §  Creation of local employment opportunities §  Capacity building, technology know-how transfer §  Income to landowners from land lease contracts §  Local community trust fund will receive a share of project revenues §  Renewable energy production will help decrease electricity cost and thus boost manufacturing sector

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Project Attractiveness

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Project Attractiveness

Relative Project Attractiveness §  Investments in the finance market such as stocks can provide a relative high rate of return except that they are high risk (purchased BB stocks for $55.00 in 2009 and down to $10.00 a share) §  Money in the bank will provide a safe investment option but low rate of return (3-5% maximum)

This investment is a low risk investment with a relative high rate of return and significant positive impacts on sustainable

development in Kenya

When can we sign the contract ?

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References Taschner, A. (2012). Risk and risk management in project finance. MBA Renewables Learning Material. Institute for Distance

Learning of the Beuth University of Applied Sciences Berlin. Tiedemann, A. (2012). Project Financing for Wind Energy. MBA Renewables Learning Material. Institute for Distance Learning of

the Beuth University of Applied Sciences Berlin. UNFCCC/CCNUCC (2012). Kipeto Wind Energy Project. Project Design Document Form for CDM Project Activities (F-CDM-PDD).

Retrieved on 29 August 2013 from http://cdm.unfccc.int/Projects/DB/JCI1355475722.72/view Ministry of Energy (2010). Feed-in-Tarrifs Policy on Wind, Biomass, Small-Hydro, Geothermal, Biogas and Solar Resource

Generated Electricity. Retrieved on 29 August 2013 from http://kerea.org/wp-content/uploads/2012/12/Feed-in-Tariff-Policy-2010.pdf

Ministry of Energy (2004). Sessional Paper No. 4 on Energy. Retrieved on 29 August 2013 from

http://www.renewableenergy.go.ke/downloads/policy-docs/sessional_paper_4_on_energy_2004.pdf Republic of Kenya (2011). Scaling-up Renewable Energy Program (SREP) – Investment Plan for Kenya. Retrieved on 29 August

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http://www.cortland-co.org/TCI%20DEIS/Appendices/Turbine%20and%20Substation%20Information/1.%20GEA18628_Wind%201.6%20Brochure_r12.pdf

Burnham, M and Gronewold, N (2010). Droughts Turn Out the Lights in Hydro-Dependent African Nation. New York Times, May

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http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/Annual-Reports/English/DB12-FullReport.pdf

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References Greentechmedia (2013). “A Record Year for World Wind Power in 2012”. Retrieved on 9 September from http://www.greentechmedia.com/articles/read/A-Record-Year-for-World-Wind-Power-in-2012 STRATCO (2013). Determining Wind Speed. Stratco (Australia) Pty Limited. Retrieved on 29 August from http://stratco.com.au/

pdf/Brochures/other/Wind_Speed_Design_Guide.pdf IEEE PES Wind Plant Collector System Design Working Group (2009). Wind Power Plant Substation and Collector System

Redundancy, Reliability and Economics. University of Tennessee. Retrieved on 29 August from http://power.eecs.utk.edu/pubs/Fangxing_li_ieeepes2009_5.pdf

Kenya Power (2012). Annual Report and Financial Statements. Retrieved on 29 August from

http://www.kenyapower.co.ke/tender_docs/ANNUAL%20REPORT%20AND%20FINANCIAL%20STATEMENTS%202011-12%20EMAIL.pdf

Republic of Kenya, Ministry of Energy (2011). Updated Least Cost Power Development Plan. Retrieved on 29 August 2013 from http://www.renewableenergy.go.ke/downloads/studies/LCPDP-2011-2030-Study.pdf

http://www.bssa.org.uk/faq.php?id=26. Retrieved on 07 September 2013.

http://www.windenergie-im-binnenland.de/powercurve.html. Retrieved on 07 September 2013.

http://www.wind-energy-market.com/en/wind-turbines/big-plants/details/details/bp/ge-16-100/. Retrieved on 07 September 2013. http://www.sectorspdr.com/shared/pdf/spdr-periodic-table-web.pdf. Retrieved on 11 September 2013.

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